Small employers need better ICHRA options, said analyst at Senate Finance hearing

Members of the Senate Finance Committee focused mainly on Medicare plans and individual major medical insurance Tuesday at a hearing on health care and health insurance costs.

Theo Merkel, a health policy analyst at the Paragon Health Institute, a research center that has been popular with Republican policymakers, touched on employer-sponsored health benefits when he talked about individual coverage health reimbursement arrangements, a relatively new strategy employers can use to provide cash that workers can use to buy their own health insurance.

One obstacle for employers interested in offering ICHRAs is that the current quality level of the policies available through individual major medical market, and especially through the Affordable Care Act public exchange program, is often terrible, Merkel said.

The quality is poor because most of the exchange shoppers are low-income people using federal ACA premium tax credit subsidies to pay most or all of the premiums, he added.

He suggested that supporting ICHRA market expansion could improve ACA exchange plan quality.

“Insurers would be targeting these new enrollees,” Merkel said.

Related: ICHRAs need better individual health insurance options, actuaries warn

Merkel was cut off before he could say more about ICHRAs or employer-sponsored health benefits.

In written testimony, he said insurer efforts to appeal to ICHRA enrollees would help all consumers shopping for individual coverage.

“Instead of designing plans primarily to target low-income enrollees who do not pay their own premiums, insurers would likely offer more options that resemble the current [employer-sponsored insurance] market,” Merkel said. “Congress could make this an even more appealing option for employers by allowing them to give their employees a choice of a traditional employer plan or an ICHRA.”

Expanded ACA individual subsidies

Starting in 2014, the Affordable Care Act provided premium tax credit subsidies for people with income up to 400% of the federal poverty level.

Temporary subsidy expansion provisions adopted during the COVID-19 pandemic have made tax credits available to higher-income taxpayers when the cost of standard health coverage exceeds more than about 10% of their income.

The current level of federal subsidies for individual exchange plan users is comparable to the cost of the group health benefits tax exclusion that the government provides for workers with employer-sponsored health coverage, according to Jeanne Lambrew, a health policy analyst at the Century Foundation, a research center popular with Democrats.

In her written testimony, Lambrew cited an analysis suggesting that employers’ self-insured health plans cost more than state-regulated health insurance coverage, even after adjusting for differences in patient characteristics, plan type and geography.

Merkel said in his written testimony that the expanded individual health subsidies appear to be crowding out employer-sponsored health coverage.

“Starting in 2022, KFF reported a distinct drop in the percentage of small businesses with under 10 workers offering health insurance to their employees, hitting a new 25-year low,” Merkel said.

New U.S. Census figures show that the number of people who had employer-sponsored coverage dropped 1.6 million between 2022 and 2023, Merkel added.